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ERISA's Fiduciary Rule - Not Dead Yet?

The controversial new fiduciary regulation of the U.S. Department of Labor (the “DOL”), together with related new and amended “prohibited transaction” exemptions (collectively, the “Rule”), had been scheduled to become generally applicable on April 10, 2017. After the issuance of a February 3, 2017 Presidential Memorandum directing the DOL to reexamine the Rule, on March 2, 2017 the DOL proposed a 60-day extension of the applicability date of the Rule to June 9, 2017. Now, on April 4, 2017, after issuing a temporary enforcement ban regarding the Rule on March 10, 2017, the DOL has finalized the 60-day extension (the “Extension”).

The Extension is in many ways a mixed bag. The applicability date of the fiduciary regulation and the related “best interest contract” (“BIC”) exemption is extended to June 9, 2017, as expected. In addition, many arguably cumbersome and onerous notification, documentary and similar requirements under the BIC exemption are put off from the original April 10, 2017 applicability date until January 1, 2018.

There was a sense among some that the 60-day extension would be the first step down a path of additional extensions, ultimately culminating in the substantial scaling back or total elimination of the Rule. However, in light of the language used by the DOL in releasing the Extension while the future of the Rule remains unclear, it now seems possible that the Rule, or at least the basic aspects thereof, may survive. In listing the advantages of the Extension, the DOL indicates that it believes there is “fairly widespread” agreement about the "Impartial Conduct Standards" as a general matter, and that having them be effective as of June 9, 2017 (rather than January 1, 2018) "provides retirement investors with the protection of basic fiduciary norms and standards of fair dealing.”

It is possible, therefore, that the import of the Extension is that, although the Rule conceptually will become final on June 9, by the end of 2017 action may be taken to scale back or eliminate much of the Rule's notification, documentary and similar requirements (leaving in place the Impartial Conduct Standards). Other courses are possible, to be sure. For example, the Rule could still be rescinded altogether and, conversely, the Rule could be left in place substantially unchanged. Still other possibilities include ‎additional administrative extensions or even a legislative solution (conceivably applicable to all accounts, not just retirement accounts).‎ But, for the first time in months, there is language coming out of the Trump administration that appears to be supportive to some extent of certain aspects of the existing Rule.

Much is going to need to be watched here, including the process by which the DOL gets its new Secretary, and the possible impact of that development. For now, though, financial institutions may well wish to take seriously the possibility that the June 9 applicability date for the basic aspects of the Rule may be a real date.